Tuesday, June 24, 2008

"Misery Index" - the real numbers

The unemployment rate and the annual inflation rate are sometimes added together to create what is called the "misery index". A number of news outlets have recently speculated as to why things seems so bad for most people, but the misery index, based on the "official" government numbers, is a relatively low 9.6.

The problem is that, for decades, the federal government has been gimicking both indices. For example, since the mid-1990s, the unemployment rate excludes "discouraged workers" who are no longer even looking for work. As another example of a change made in the 1990s (from ShadowStats.com):

The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.

If we use more traditional measures, unemployment is nearing 14%, inflation is nearly 12%, the misery index is 26% (far worse than the previous post-World War II record of 20.76 in 1980), and we're almost 4 years into a recession!

Making matters even worse (pointed out here), whereas in the 1970s, raises generally kept up with inflation, raises today (usually in the 2% to 4% range) clearly have not and will not.